Given TCM Petroleum Sales Cost of Goods Sold Gross Profit Selling, General, & Administrative Expense Operating Income Before Deprec. Depreciation, Depletion, & Amortization Operating Profit (NOI) Interest Expense Non-Operating Income/Expense Special Items Pretax Income Total Income Taxes Net Income Dec-14 Dec-15 00 3368.00 1975.00 10.5910 2.456.00 2TDO 698.00 OD 194 DOWN 87100 958.00 295 00 139.00 15100 200 352.00 1.000 140.00 425 60 51120 7 8 9 CAPEX estimated as follows: CAPEX NET PP&E ending + Depreciation - NET PP&E beginning ON Purchase of PP&E (CAPEX) Increase in Net Working Capital 575 102 430 23 24 25 TCM's average tax rate Increase in Net Working Capital estimated as follows: NWC 2015 - NWC 2014 10 Solution a. FCF Calculations for 2014-2015 Year 2014 $ 26 27 28 29 30 31 32 33 34 Net Operating Income (NOI) NOI(1-T) - NOPAT Plus: Depreciation Expense Less: CAPEX Less: Working Capital Investment Firm Free Cash Flow 958 $ 575 794 (875) 2015 1,208 725 871 (1,322) 430 704 (102) $ 3925 b. Estimated FCF for 2016-2015 35 36 37 38 39 40 41 42 43 S Year 2018 1,608 $ 965 2016 1,329 $ 797 00 2017 1,462 $ 877 2019 1,769 $ 1,061 2020 1,945 1,167 NOI (Growing at 10% per year) NOI (1-40) - NOPAT Plus: Depreciation Expense Less: CAPEX Less: Working Capital Investment Firm Free Cash Flow (FCF) 700 BBQ S 1.068S 1.264 1.170 45 In 2014, TCM made capital expenditures of $875 million, followed by $1,322 million in 2015. TCM also invested an additional $102 million in net working capital in 2014, fol- lowed by a decrease in its investment in net working capital of $430 million in 2015. a. Calculate TCM's FCFs for 2014 and 2015. TCM's tax rate is 40%. b. Estimate TCM's FCFs for 2016 to 2020 using the following assumptions: Op- erating income continues to grow at 10% per year over the next five years, CAPEX is expected to be $1,000 mil- lion per year, new investments in net working capital are expected to be $100 million per year, and depreciation expense equals the prior year's total plus 10% of the prior year's CAPEX. Note that because TCM is a going concern, we need not be concerned about the liquidation value of the firm's assets at the end of 2020